CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Under what circumstances should a company defer and amortize costs incurred in defending a patent against an infringement?
A. Such costs should never be capitalized.
B. Such costs should always be capitalized, regardless of the outcome of the suit.
C. Only when the suit is successful.
Explanation: Costs incurred defending a patent, trademark, etc. can only be capitalized if the suit is successful. If the suit is unsuccessful, there is no economic benefit and therefore no asset.

User Contributed Comments 8

User Comment
gord Is this not backwards? The question states the company is defending a if the suit is successful, they lost the case and the patent did not hold up and there is no asset. I take i they are looking at "successful" through the eyes of the defendent.
mtcfa Successful in the eyes of the defendant, not the plaintiff. If it is successful, the defendandts win the case and the asset remains.
eddeb to me, when a SUIT is successful, it means the plaintiff has won...
todolist capitalization is only recognized when justified with positive economic benefits
jnptrsn1 Wouldnt all the costs of the suit be borne by whoever loses the case, including legal fees of the other side?
Inaganti6 my god you guys are overthinking this
Albert123 Didnt it say that merely sustaining an asset should always be expensed ( maintenance ) the suit does not creat new benefits for the company rather it only sustains the ones the company currently has. Shouldnt it be always expensed ?
ashish100 agreed with Inaganti6.
This isn't rocket science or law.

If the company successfully defends itself against one lawsuit, it won't have to deal with the rest of the bums. So it becomes an asset that defends them from the evil.

I'm losing it. I know.
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